(Corrects paragraph 3 in May 21 story to clarify Paragon was in
talks to buy the banking subsidiary of National Counties
* Plans to take advantage of lighter capital rules
* New bank to offer personal loans, car loans
* New bank to be deposit-funded
* H1 underlying profit 48.2 mln stg, below forecasts
By Matt Scuffham
LONDON, May 21 British buy-to-let mortgage
provider Paragon plans to set up a bank next year,
taking advantage of new rules designed to encourage competition
to Britain's established lenders.
Under pressure from lawmakers to increase choice in a sector
dominated by five banks, Britain's financial regulator said in
March that start-up banks would no longer need as much capital
as their established rivals.
Chief Executive Nigel Terrington said on Tuesday the change
had prompted Paragon to end talks to buy the banking subsidiary
of National Counties Building Society and to apply for a banking
"We'd already decided to pursue the consumer finance market
through a banking route," he said. "At one point we were
pursuing entry via an acquisition but we changed that plan to go
the organic route," he told Reuters in an interview.
Capital requirements will be lighter for the first three to
five years as long as a new bank can show deposits are insured
and that it can be wound up without destabilising markets.
Terrington said Paragon's bank would launch in 2014,
offering deposit-funded consumer finance lending including
personal loans and car loans.
New banks have slowly begun to surface since the 2008
financial crisis, looking to fill the gap as Britain's biggest
lenders focus on shrinking their balance sheets and building up
capital to meet new regulations.
Most of the challengers, such as Aldermore and Shawbrook,
are not looking to offer all banking services, but are instead
focusing on particular areas of the market where they believe
they can compete with larger operators.
Paragon posted a 10 percent increase in underlying pretax
profit in the first half of its fiscal year, but that missed
market expectations and its shares, up over 90 percent since the
start of 2012, were down 3.6 percent at 0915 GMT.
Paragon reported an underlying pretax profit of 48.2 million
pounds ($73.4 million) in the six months to the end of March,
boosted by profits from newly acquired loan portfolios.
Analysts' average forecast had stood at 50.25 million pounds,
according to Thomson Reuters I/B/E/S data.
Terrington said not all of the benefit of recent
acquisitions had come through and was "comfortable" with the
average profit forecast of 103 million pounds for the full year.
Paragon has performed strongly during the economic downturn
with buy-to-let mortgages in demand as landlords take advantage
of a booming rental market while first-time home buyers struggle
to get on the housing ladder. The company has also expanded
through acquisitions as mainstream lenders sell off loans.
Paragon granted loans worth 102.3 million pounds during the
period, up from 89.2 million the year before.
($1 = 0.6570 British pounds)
(Reporting by Matt Scuffham, Editing by Brenda Goh)